[Comments-reserve-fund-12oct17] RrSG Comment on ICANN Reserve Fund –Rationale and Target Level

[Zoe Bonython]

Hello,

On behalf of the RrSG, I would like to submit the below comment on the ICANN Reserve Fund - Rationale and Target Level.

Kind regards,

Zoe Bonython
RrSG Secretariat

Registrar Stakeholder Group Comment on the ICANN Reserve Fund –Rationale and Target Level

 

The RrSG considers that the proposed ICANN Reserve Funding proposal is well thought out and researched. The use of comparisons to other not-for-profits was appropriate. Estimates of what is needed in reserve are by their nature a series of deductions based on foreseen contingencies. Consequently deliberations about the optimal size of a reserve fund must reflect a number of considerations.  What are the reasonable risks? How long must the organization be able to run without revenues? How independent should the ICANN structure be from its sources of revenue? What is lavish and what is a prudent? The Registrars recognize that opinions will differ on reasonable grounds, and as a group they have clear interests to advance and concerns to express.
 
Registrars’ concerns
The Registrars are concerned with two questions: the size of the reserves, and therefore the duration of the time that ICANN should be expected to run without further revenues, and the sources of the money intended as reserves: what sources should be used, in what order, and what sources should not be used.
 
Duration of reserves
There was no support whatever for a duration of reserves longer than 12 months. Some members considered that even 12 months of funding at current expenditure levels was excessive for the intended purpose of the reserves. Those members stated a preference that the reserves be held strictly for the purpose of winding down ICANN in the event that that becomes necessary. A majority of RrSG members considered that a twelve month reserve suitable for the purpose of running the organization was reasonable.
 
Sources of the reserves
It was the strong feeling of the Registrars that ICANN was living on a rich diet, that administration was top-heavy, and this in turn generated a wariness towards allowing one-time uses of reserve funds to make up for budget deficits. It was recognized that benefits once extended, and habits once ingrained, would render it difficult to roll back or restrain.
 
Of supreme importance, Registrars also state their opposition to any proposed increase (temporary or permanent) in Registrar per-domain fees to replenish the reserve fund.  Replenishing and maintaining the fund must be incorporated in to ICANN’s budget, and shortfalls should not be borne by registrants, but by cutting expenses elsewhere in the organization. In this regard it was proposed that, for greater transparency on the expense side, Registrars request that ICANN-Finance identify Board expenses directly related to Board governance activities as distinct from those of representing ICANN in various venues.
Second, registrars expressed concern that ICANN should not use the gTLD auction proceeds for purposes of replenishing the reserves. The group considers that such an act would run counter to the stated purpose of the gTLD auction proceeds and could set a dangerous precedent for future ICANN funding. If once registrars allowed such a practice, it is believed that ICANN would tend to make a habit of over-spending its budget, drawing down the reserves to cover the shortfall, then replenishing the reserves from the auction fund, thereby turning auction proceeds into an additional source of funding to cover ICANN over-expenditure.
According to the New gTLD Auction Proceeds Discussion Paper, Updated[1]the complete set of uses of the auction proceeds have not finally be agreed upon, but no one has contemplated auction proceeds should be used for establishing reserves. It cited the New gTLD Applicant Guidebook as follows:
 
“The purpose of an auction is to resolve contention in a clear, objective manner. It is planned that costs of the new gTLD program will offset by fees, so any funds coming from a last resort contention resolution mechanism such as auctions would result (after paying for the auction process) in additional funding. Any proceeds from auctions will be reserved and earmarked until the uses of funds are determined. Funds must be used in a manner that supports directly ICANN’s Mission and Core Values and also allows ICANN to maintain its not for profit status.
 
Possible uses of auction funds include formation of a foundation with a clear mission and a transparent way to allocate funds to projects that are of interest to the greater Internet community, such as grants to support new gTLD applications or registry operators from communities in subsequent gTLD rounds, the creation of an ICANN-administered/community based fund for specific projects for the benefit of the Internet community, the creation of a registry continuity fund for the protection of registrants (ensuring that funds would be in place to support the operation of a gTLD registry until a successor could be found), or establishment of a security fund to expand use of secure protocols, conduct research, and support standards development organizations in accordance with ICANN's security and stability mission.”
 
New gTLD Applicant Guidebook –Section 4.3.
Third, the Registrars considered that, independently of the preceding considerations, other reserves should be used in priority to auction funds, namely the funds set aside as litigation reserves. Accordingly, the registrars consider that a reserve policy must address the issue of the priority of use of various reserve funds: in what order they should be drawn down, and they consider that unused litigation reserves should be used before registrars are called upon to top up general reserves.
 

[1] https://gnso.icann.org/en/drafts/new-gtld-auction-proceeds-07dec15-en.pdf
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